By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasury prices extended a slide Tuesday after a manufacturing gauge posted an unexpected August gain, sending yields higher.
The Institute for Supply Management’s manufacturing index showed the sector expanded in August at its fastest pace in more than two years, registering at 55.7%, compared to 55.4% in July. Economists had expected a 54.1% reading.
On that news, the 10-year Treasury note 10_YEAR +3.84% yield, which moves inversely to price, jumped 11 basis points on the day to 2.898%.
The 30-year bond 30_YEAR +3.10% yield advanced 11.5 basis points to 3.808%, and the 5-year note 5_YEAR +4.61% yield rose 7 basis points to 1.723%.
“This was an unambiguously positive report, signaling a further acceleration in manufacturing momentum in August,” said Millan Mulraine, director of U.S. research and strategy at TD Securities, in a note. “And given the impressive track record of this indicator in gauging the tone of economic growth, it is a very important signal of improved growth performance in the coming months.”
Data Tuesday also showed that Markit’s manufacturing purchasing manager’s index edged down to 53.1 in August, after a preliminary reading of 53.9.
Bond-market participants will look to economic data as key indicators of whether the Federal Reserve will scale back the pace of its $85 billion in month bond purchases. Of particular note will be the employment data on Friday, as the Fed pays particular attention to the performance of the labor market. The employment gauge in the ISM index fell 1.1 percentage points to 53.3%, according to data on Tuesday.
Nonetheless, fears of the so-called tapering in bond buying have caused yields to move sharply higher for much of the summer. While the Fed has said monetary policy will be based on data, markets largely expect tapering to occur at the September policy meeting.
Markets are waiting to see whether the U.S. will take action against Syria in response to its alleged use of chemical weapons. Investors looking toward Syria bid up bonds last week as they flocked to the safety of the Treasury market.
However, President Obama’s decision Saturday to seek Congressional approval before moving forward with attacks slowed fears of an imminent strike, leading to an unwind of the safety bid Tuesday.
U.S. stocks traded higher on Tuesday.
Ben Eisen is a MarketWatch reporter based in New York.
